IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances. 

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018.  A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.  State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed. 

The following examples illustrate these points.

Example 1:  Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018.  On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018.   Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.  

Example 2:  County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018.  County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019.  However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year.  Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

The IRS reminds taxpayers that a number of provisions remain available this week that could affect 2017 tax bills. Time remains to make charitable donations. See IR-17-191 for more information. The deadline to make contributions for individual retirement accounts - which can be used by some taxpayers on 2017 tax returns - is the April 2018 tax deadline. 

Identity Theft—New Phishing Scam Targets Hotmail Accounts

The IRS is warning taxpayers and tax practitioners about a new email scam targeting Hotmail users. The subject line of the phishing email reads: "Internal Revenue Service Email No. XXXX / We're processing your request soon / TXXXXXX-XXXXXXXX." The message prompts recipients to sign in to a fake Microsoft page, which asks for personal and financial information. To date, the IRS has received over 900 complaints about this new phishing scheme. The IRS reminds taxpayers that it generally doesn't initiate contact by email to request personal or financial information. Those receiving the email should forward it to  phishing@irs.gov  and then delete it. 

ICYMI: Florida Minimum Wage Change, January 1, 2018

The 2018 minimum wage in Florida is $8.25 per hour, effective January 1, 2018, with a minimum wage of at least $5.23 per hour for tipped employees, in addition to tips.

Tax Reform Year-end Tips

Here are a few tips and to-dos prior to December 31:

• Prepay any 2017 state income taxes.
• Pay or prepay Property Tax by December 31.
• Make charitable contributions before December 31.
• Accelerate any of your children’s unearned income into 2017 (rates go up in 2018).
• Defer business income to 2018 (rates go down in 2018, plus deduction)
• Cash-basis taxpayers should pay for business expenses before December 31. 
• Buy and place in service an electric car (tax credit expires at end of 2017).
• Recognize any possible business losses (they will be limited in 2018).
• Prepay investment expenses and tax prep fees in 2017 (nondeductible in 2018).
• Pay any moving expenses related to a job in 2017 (the deduction is eliminated in 2018).
• Sell any business processes or patents before the end of the year (this will be treated as ordinary income in 2018, and is capital gains in 2017).
• Wait to buy a business vehicle until 2018 (depreciation on luxury autos goes up substantially in 2018).

These tips are general in nature and should not be relied upon as professional advice. You are encouraged to discuss these matters with a professional prior to actions that may affect your tax returns. 

IRS Provides Safe Harbors for Determining Casualty and Theft Losses

In a set of Revenue Procedures, the IRS has provided safe harbor methods that taxpayers may use in determining the amount of their casualty and theft losses for their homes and personal belongings. Rev. Proc. 2018-8 offers four safe harbor methods that apply to any qualifying casualty or theft loss, as well as three methods that apply only to losses occurring as a result of a federally declared disaster. Rev. Proc. 2018-9 provides a safe harbor method that allows a homeowner to use one or more cost indexes to determine the amount of a home loss due to Hurricanes Harvey, Irma, or Maria (2017 Hurricanes). The safe harbors outlined in Rev. Proc. 2018-8 are effective on 12/13/17. The method detailed in Rev. Proc. 2018-9 is effective for losses attributable to a 2017 Hurricane and that arose in the 2017 disaster area after 8/22/17. News Release IR 2017-202; Rev. Procs. 2018-8, 2018-2 IRB and 2018-9, 2018-2 IRB

IRS increases standard mileage rates for 2018

The Internal Revenue Service released on Thursday the 2018 optional standard mileage rates that taxpayers and tax professionals can use to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2018, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be

• 54.5 cents for every mile of business travel driven, up 1 cent from the rate for 2017.
• 18 cents per mile driven for medical or moving purposes, up 1 cent from the rate for 2017.
• 14 cents per mile driven in service of charitable organizations.

The IRS noted that the business mileage rate and the medical and moving expense rates have each increased 1 cent per mile from the rates for this year. The charitable rate, however, is set by statute and stays unchanged.

The standard mileage rate for business comes from an annual study of the fixed and variable costs of operating an automobile, while the rate for medical and moving purposes is based on the variable costs.

The IRS noted that taxpayers also have the option of figuring the actual costs of using a vehicle instead of relying on the standard mileage rates.

However, taxpayers can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after they claim a Section 179 deduction for that vehicle. On top of that, the business standard mileage rate can’t be used for more than four vehicles used simultaneously. The IRS describes those and other requirements in Rev. Proc. 2010-51.

The IRS noted that taxpayers also have the option of figuring the actual costs of using a vehicle instead of relying on the standard mileage rates.
However, taxpayers can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after they claim a Section 179 deduction for that vehicle. On top of that, the business standard mileage rate can’t be used for more than four vehicles used simultaneously. The IRS describes those and other requirements in Rev. Proc. 2010-51.